(Solution) If The Net Present Value Of A Project Is Positive (nonzero), Then The Project's: PI Will Be Less Than 1. Internal Rate Of Return Will Exceed Its... | Snapessays.com


(Solution) If the net present value of a project is positive (nonzero), then the project's: PI will be less than 1. internal rate of return will exceed its...


1. If the net present value of a project is positive (non?zero), then the project's:A. PI will be less than 1.B. internal rate of return will exceed its required rate of return.C. costs exceed its benefits.D. discounted payback period will exceed the life of the project.E. payback period must equal the life of the project.2. Which of these are disadvantages of the payback method?I. May ignore some cash flowsII. Required time period is set arbitrarilyIII. Easy to computeIV. Ignores the time value of moneyA. IV onlyB. I and III onlyC. II and IV onlyD. II, III, and IV onlyE. I, II, and IV only3. Projects A and B are mutually exclusive, have positive net present values and required discountedpayback periods that exceed the projected discounted payback periods. Which project(s), if either,should the firm accept?A. Both A and BB. Neither A nor BC. A, but not BD. B, but not AE. Either A or B but not both A and B4. Projects A and B require an initial investment of $48,000 and $98,000, respectively. The projects aremutually exclusive and both have positive net present values. Which of these methods is probably thebest method to use to determine which project to accept?A. PaybackB. Modified IRRC. AARD. Incremental IRRE. IRR5. The discount rate that makes the net present value of an investment exactly equal to zero is calledthe:A. profitable rate of return.B. internal rate of return.C. average accounting return.D. profitability index.E. risk?free rate.6. The present value of an investment's future cash flows divided by the initial cost of the investment iscalled the:A. average accounting return.B. internal rate of return.C. profitability index.D. profile period.E. net present value.7. All else constant, the net present value of a typical investment project increases when:A. the discount rate increases.B. each cash inflow is delayed by one year.C. the initial cost of a project increases.D. the rate of return decreases.E. all cash inflows are moved to the last year of the project.8. One advantage of the payback method of project analysis is the method's:A. application of a discount rate to each separate cash flow.B. bias towards liquidity.C. difficulty of use.D. arbitrary cutoff point.E. consideration of all relevant cash flows.9. The net present value of a project is projected at $210. How should this amount be interpreted?A. The project's cash inflows exceed its outflows by $210.B. The project will return an accounting profit of $210.C. The project's discounted cash flows are $210 less than its undiscounted cash flows.D. The project will increase the firm's cash account by $210 when the project is started.E. The project is earning $210 in addition to the project's required rate of return.10. The internal rate of return:A. is more reliable as a decision making tool than net present value when considering mutuallyexclusive projects.B. is the discount rate that makes the net present value of a project equal to one.C. is easier to apply than net present value when cash flows are unconventional.D. will provide the same accept/reject decision as NPV when cash flows are conventional andprojects are independent.E. is influenced by daily changes in the market rate of interest.11. Two mutually exclusive projects produce the same positive NPV at a discount rate of 11.34 percent.Both projects have 4?year lives. Project A has larger cash flows than Project B in the first two years.Given this information, you know that:A. it makes no difference which project you accept as long as the discount rate does not exceed11.34 percent.B. Project A should always be preferred.C. one project will be preferred at rates less than 11.34 percent and the other will be preferred athigher rates.D. Project B must require a smaller investment than Project A at Time 0.E. Project B should only be accepted if the discount rate is 11.34 percent.12. Analysis using the profitability index:A. frequently conflicts with the accept and reject decisions generated by the application of the netpresent value rule.B. is useful as a decision tool when investment funds are limited.C. cannot be used to aid capital structure decisions.D. utilizes the same basic variables as those used in the average accounting return.E. produces results which typically are difficult to comprehend or apply.13. Uptown Developers is considering two projects. Project A consists of building a wholesale bookoutlet on the firm's downtown lot. Project B consists of building a sit?down restaurant on that same lot.The lot can only accommodate one of the projects. When trying to decide whether to build the bookoutlet or the restaurant, management should rely most heavily on the analysis results from which one ofthese methods?A. Profitability indexB. Internal rate of returnC. PaybackD. Net present valueE. Accounting rate of return14. You are considering a project with the following data: IRR = 8.7 percent; PI = .98; NPV = ?$393;Payback period = 2.44 years. Which one of the following statements is correct given this information?A. The discount rate used in computing the net present value must have been less than 8.7percent.B. The discounted payback period will have to be less than 2.44 years.C. The discount rate used to compute the profitability ratio was equal to the internal rate ofreturn.D. This project should be accepted based on the profitability ratio.E. The required rate of return must be greater than 8.7 percent.15. Two key weaknesses of the internal rate of return rule are the:A. arbitrary determination of a discount rate and failure to consider initial expenditures.B. failure to correctly analyze mutually exclusive projects and the multiple rate of return problem.C. failure to consider all cash flows and the multiple rate of return problem.D. failure to consider initial expenditures and failure to correctly analyze mutually exclusiveprojects.E. failure to correctly analyze mutually exclusive projects and the lack of clear?cut decision rule.16. A project has an initial cost of $12,100 and cash flows of ?$2,100, $5,800, $16,600, and ?$800 forYears 1 to 4, respectively. How many IRR's will this project have?A. 0B. 1C. 2D. 3E. 417. Baxter's Market is considering opening a new location with an initial cost of $428,700. This locationis expected to generate cash flows of $132,400, $161,500, $187,800, and $201,000 in Years 1 to 4. Whatis the payback period?A. 1.86 yearsB. 2.72 yearsC. 1.31 yearsD. 2.54 yearsE. 2.31 years18. Rodriquez's Hot Rods is considering a new project with an initial cost of $26,410 and a discount rateof 8 percent. The project is expected to have one cash inflow of $42,500 in Year 2. What is thediscounted payback period?A. .72 yearsB. 1.39 yearsC. .62 yearsD. 1.72 yearsE. 1.62 years19. Bloomfield Tires has assigned a discount rate of 14.4 percent to a new project that has an initial costof $229,000 and cash flows of $74,300, $128,700, and $89,500 for Years 1 to 3, respectively. What is thenet present value of this project?A. $1,308.16B. ?$8,344.40C. ?$5,934.79D. $5,127.10E. ?$4,899.0320. Project Water has an initial cost of $639,700 and projected cash flows of $288,000, $319,000, and$165,000 for Years 1 to 3, respectively. Project Aqua has an initial cost of $411,200 and projected cashflows of $186,000, $178,000, and $145,000 for Years 1 to 3, respectively. What is the incremental IRR ofthese two mutually exclusive projects?A. 8.67%B. 10.93%C. 8.77%D. 1.06%E. 2.33521. A project has an initial cost of $38,300 and anticipated cash flows of $9,200, $18,700, $14,600 forYears 1 to 3, respectively. What is the profitability index value if the required return is 9.5 percent?A. .86B. .92C. .99D. 1.09E. 1.1622. Project Q has an initial cost of $211,415 and projected cash flows of $121,300 in Year 1 and$176,300 in Year 2. Project R has an initial cost of $415,000 and projected cash flows of $187,500 in Year1 and $236,600 in Year 2. The discount rate is 8.5 percent and the projects are independent. Whichproject(s), if either, should be accepted based on its profitability index value?A. Accept both Project Q and RB. Reject both Project Q and RC. Accept Project Q and reject Project RD. Accept Project R and reject Project QE. Accept either Project R or Project Q, but not both23. A project costs $22,900 to initiate. It is expected to provide cash flows of $15,900 in Year 1 and$9,900 in Year 2. In Year 3, it will cost the firm $5,500 to end the project. What is the modified IRR at adiscount rate of 14 percent?A. ?6.79%B. ?6.67%C. 10.63%D. 11.08%E. 14.00%24. A project requires an initial investment of $21,600 and will produce cash inflows of $4,900, $14,200,and $8,700 over the next three years, respectively. What is the project's NPV at a required return of 14percent?A. ?$287.22B. ?$503.06C. $6,200.00D. $21,096.94E. $42,696.9425. A project will not produce any cash flows for two years. Starting in the third year, it will produceannual cash flows of $11,900 a year for two years. The project initially costs $43,600. In Year 6, theproject will be closed and as a result should produce a final cash inflow of $50,500. What is the netpresent value of this project if the required rate of return is 8.7 percent?A. $5,474.76B. $4,802.57C. $3,935.56D. $7,465.95E. $5,447.7626. You are considering two independent projects. The required rate of return is 11.25 percent forproject A and 11.85 percent for project B. Project A has an initial cost of $38,900 and cash inflows of$11,400, $16,900, and $26,200 for Years 1 to 3, respectively. Project B has an initial cost of $41,300 andcash inflows of $20,000 a year for three years. Which project(s), if either, should you accept?A. Accept both A and BB. Reject both A and BC. Accept A and reject BD. Accept B and reject AE. Accept either A or B but not both A and B27. Toy Town is considering a new toy that will cost $49,100 in startup costs. The toy is expected toproduce cash flows of $47,500 in Year 1 and $18,600 in Year 2. The toy will be discontinued after thesecond year. The discount rate assigned to the toy is 14.9 percent. Should the toy be produced? What isthe IRR?A. Yes; 26.65%B. Yes; 41.79%C. Yes; 38.03%D. No; 26.65%E. No; 41.79%28. You are considering two independent projects. The required return for both projects is 13 percent.Project A has an initial cost of $139,600 and cash inflows of $48,200, $54,600, and $68,700 for Years 1 to3, respectively. Project B has an initial cost of $94,200 and cash inflows of $67,600 and $41,200 for Years1 and 2, respectively. Given this information, which one of the following statements is correct based onthe NPV and IRR methods of analysis?A. You should accept both projects.B. You should accept Project A and reject Project B.C. You should accept Project B and reject Project A.D. NPV indicates accept Project A while IRR indicates accepting Project B.E. You should reject both projects.29. A new product has startup costs of $338,200 and projected cash flows of $102,000, $187,500, and$245,000 for Years 1 to 3, respectively. What is the profitability index given a 9 percent required return?A. .71B. .77C. 1.16D. 1.30E. 1.4130. Miller's is considering a 2?year expansion project that will require $410,000 up front. The project willproduce cash flows of $358,000 and $98,000 for Years 1 and 2, respectively. Based on the profitabilityindex (PI) rule, should the project be accepted if the discount rate is 12 percent? Why or why not?A. Yes; because the PI is 1.03B. Yes; because the PI is .97C. Yes; because the PI is .94D. No; because the PI is 1.03E. No; because the PI is .9731. A project has an initial cost of $10,800 and produces cash inflows of $4,100, $4,800, and $5,600over Years 1 to 3, respectively. What is the discounted payback period if the required rate of return is 11percent?A. 2.13 yearsB. 2.34 yearsC. 2.78 yearsD. 2.91 yearsE. Never32. Project A has an initial cost of $16,400 and cash flows of $5,100, $6,800, and $6,900 for Years 1 to 3,respectively. Project B has an initial cost of $21,200 and cash flows of $8,300, $7,900, and $7,700 forYears 1 to 3, respectively. What is the incremental IRR?A. 2.89%B. 4.07%C. 5.91%D. 6.75%E. 7.90%33. The Walk?Up Window is considering two mutually exclusive projects. Project A has an initial cost of$49,230 and annual cash flows of $31,200 for three years. Project B has an initial cost of $21,400 andannual cash flows of $21,400 for two years. What is the crossover rate?A. 26.18%B. 29.39%C. 15.44%D. ?20.49%E. 15.86%34. Project I has an initial cash outflow of $18,300 and annual cash flows of $8,700 for Years 1 to 3.Project II has an initial cash outflow of $25,400 and annual cash flows of $10,500 for Years 1 to 3. Theseprojects are mutually exclusive. The required rate of return is 11 percent. Based on the incrementalNPV(II ? I), which project(s) should be accepted and why?A. Project II; because the incremental NPV(II ? I) is negativeB. Project I; because both the incremental NPV(II ? I) and NPVI are positiveC. Both Project I and II; because both project NPVs are positiveD. Project II; because it has the larger NPVE. Project I; because the incremental NPV(II ? I) is negative and NPVI is positive35. A project is expected to have annual cash flows of $22,400, $13,600 and ?$4,200 for Years 1 to 3,respectively. The initial cash outlay is $27,500 and the discount rate is 12 percent. What is the modifiedIRR?A. 13.12%B. 13.22%C. 2.73%D. 8.67%E. 9.75%36. Global Enterprises has spent $134,000 on research developing a new type of shoe. For this shoe tonow be manufactured, the firm will need to expand into an empty building that it currently owns. Thefirm was offered $229,000 last week for that building. An additional $342, 000 will be required for newequipment and building improvements. Labor and material costs are estimated at $4.98 per pair ofshoes. Interest expense on the loan needed to finance the production of this new shoe will be $17,800 ayear. Which one of these correctly identifies the sunk costs?A. $229,000 value of the buildingB. $134,000 for researchC. $229,000 value of the building plus $342,000 for new equipment and improvementsD. $17,800 for interest plus $134,000 for researchE. $229,000 for the building plus $134,000 for research37. Bloomfield's has some equipment sitting idle in a warehouse. The equipment is fully paid for andalso fully depreciated. If the firm decides to use this equipment for a new project, what cost, if any,should the firm include in its startup costs for the project?A. There is no cost to the project for this equipment.B. The original purchase price of the equipment should be included in the startup costs.C. The original purchase price minus any tax savings realized to date on the depreciation should beincluded in the startup costs.D. The current market value of the equipment should be included in the startup costs.E. The annual storage cost for the equipment should be included as a cash inflow in the startupcosts.38. The most valuable investment given up if an alternative investment is chosen is referred to as a(n):A. sunk cost.B. opportunity cost.C. salvage value expense.D. equivalent annual cost.E. erosion cost.39. The cash flows of a new project that come at the expense of a firm's existing projects are called:A. opportunity costs.B. net working capital expenses.C. erosion costs.D. salvage value expenses.E. sunk costs.40. Which one of these statements is correct?A. Operating cash flow is equal to net income plus depreciation plus taxes.B. Sunk costs should be included in the initial cost of a project.C. Synergy occurs when a new product reduces the sales of a current product.D. The cost of test marketing a product prior to deciding whether or not to produce the product isa sunk cost.E. Real cash flows must be discounted at the nominal rate.41. Which one of these statements related to depreciation is correct for a firm with taxable income of$121,600 and aftertax income of $74,200?A. Depreciation increases the net book value of the firm's assets.B. Depreciation in a non?cash expense that increases the firm's cash flows.C. Depreciation lowers the firm's net income but does not affect its cash flows.D. Depreciation has no effect on either the firm's net income or its cash flows.E. Depreciation decreases both the firm's net income and its cash flows.42. The cash flows for a project include the:A. net operating cash flow generated by the project, less both sunk and erosion costs.B. incremental operating cash flow, as well as the capital spending and net working capitalrequirements.C. net income generated by the project plus the annual depreciation expense.D. sunk costs, opportunity costs, and erosion costs of the project.E. incremental operating cash flow and aftertax salvage value of the project.43. The incremental cash flows of a project are best defined as:A. the cash received from the additional sales generated by the project.B. any change in a firm's cash flows resulting from the addition of the project including opportunitycosts.C. the cash received or lost from changes in the sales of a firm's current products as a result ofadding the project.D. the increase or decrease in a firm's cash flows resulting from adding the project, excluding allsunk and opportunity costs.E. the total cash flows of a firm once the new project is completely integrated into the firm'soperations.44. Which one of the following is an example of an incremental cash flow for Project A?A. The insurance on a building the company currently owns that will house the operations forProject AB. The property taxes on a currently owned warehouse that has been sitting idle but is going to beutilized by Project AC. The cost of the test marketing to ascertain whether or not Project A is feasibleD. The rental cost of some new machinery that will be acquired for Project AE. The contractual annual salary of the company president45. Assume an asset cost $41,500 and has a current book value of $23,200. The asset is sold today for$19,900 cash. The firm's tax rate is 34 percent. As a result of this sale, the firm's net cash flow:A. will increase by exactly $19,900.B. will decrease by the difference between the $23,200 and the $19,900.C. will increase by more than $19,900.D. will increase by less than $19,900.E. will decrease by some amount.46. Which of the following should be included in the analysis of a project?I. Sunk costsII. Opportunity costsIII. Erosion costsIV. Incremental costsA. I and II onlyB. III and IV onlyC. II and IV onlyD. II, III, and IV onlyE. I, II, and IV only47. Changes in net working capital:A. are included in project analysis only if they represent cash outflows.B. only affect the initial cash flows of a project.C. can affect the cash flows of a project every year of the project's life.D. are generally excluded from project analysis due to their irrelevance to the total project.E. affect the initial and the final cash flows of a project but not the cash flows of the middle years.48. The book value of an asset is primarily used to compute the:A. annual depreciation tax shield.B. amount of tax due on the sale of an asset.C. amount of tax saved annually due to the depreciation expense.D. amount of cash that can be received from the sale of an asset.E. change in depreciation needed to reflect the market value of the asset.49. All else equal, a project's operating cash flow will increase when the:A. net working capital requirement increases.B. sales projections are lowered.C. interest expense is lowered.D. depreciation expense increases.E. earnings before interest and taxes decreases.50. The top?down approach to computing the operating cash flow:A. applies only if a project produces sales.B. ignores all noncash items.C. can only be used if the entire cash flows of a firm are included.D. is equal to sales ? costs ? taxes ? depreciation.E. includes the interest expense related to a project.51. Toni's Tools is comparing machines to determine which one to purchase. The machines sell fordiffering prices, have differing operating costs, differing machine lives, and will be replaced when wornout. These machines should be compared using:A. net present value only.B. both net present value and the internal rate of return.C. the replacement parts approach.D. the depreciation tax shield approach.E. the equivalent annual cost method.52. Which one of these is a requirement when computing the net present value of a capital project?A. The discount rate used must be a nominal rate.B. The discount rate must be stated in real terms.C. Nominal cash flows must be discounted using a real rate.D. Real cash flows must be converted to nominal cash flows.E. Real cash flows must be discounted using a real rate.53. When compiling the relevant cash flows for a project, the aftertax value of any asset sold any timeduring the life of the project should be treated as:A. a cash outflow at Time 0.B. a change in net working capital.C. a reduction in the cash flow for Time 0.D. a cash flow in the last year of the project.E. a cash flow in the year of sale.54. Dilwater Furniture purchased a corner lot in Pittsburg five years ago at a cost of $890,000. The lotwas recently appraised at $1,070,000. At the time of the purchase, the company spent $80,000 to gradethe lot and another $120,000 to pave the lot for commuter parking. The company now wants to build anew retail store on the site. The building cost is estimated at $1.8 million. What amount should be usedas the initial cash flow for this building project?A. $3,070,000B. $1,070,000C. $1,800,000D. $2,870,000E. $2,890,00055. Aaron's Paint paid $320,000, in cash, for a piece of equipment three years ago. Last year, thecompany spent $34,000 to update the equipment with the latest technology. The equipment is beingdepreciated using the straight?line method over seven years. The company no longer uses thisequipment in its current operations and has received an offer of $175,000 from a firm that would like topurchase it. Aaron's is debating whether to sell the equipment or to expand its operations such that theequipment can be used. When evaluating the expansion option, what value, if any, should be assignedto this equipment as an initial cost of the expansion project?A. $364,000B. $179,000C. $175,000D. $187,000E. $212,00056. Walks Softly sells customized shoes. Currently, it sells 16,000 pairs of shoes annually at an averageprice of $68 a pair. The company is considering adding a lower?priced line of shoes that will sell for $39 apair. Walks Softly estimates it can sell 7,000 pairs of the lower?priced shoes but will sell 1,000 less pairsof the higher?priced shoes by doing so. What is the amount of the sales that should be used whenevaluating the addition of the lower?priced shoes?A. $205,000B. $245,000C. $313,000D. $273,000E. $1,293,00057. Farris Industrial purchased a machine five years ago at a cost of $164,900. The machine is beingdepreciated using the straight?line method over eight years. The tax rate is 35 percent and the discountrate is 14 percent. If the machine is sold today for $42,500, what will the aftertax salvage value be?A. $35,731.88B. $27,625.00C. $49,268.13D. $63,696.88E. $52,011.1858. Turkey Hill Motor Homes currently sells 1,200 Class A motor homes, 2,600 Class C motor homes,and 4,000 pop?up trailers each year. It is considering adding a mid?range camper and expects that if itdoes so the firm can sell 1,500 of them. However, if the new camper is added, the firm expects its ClassA sales to decline by 10 percent while the Class C camper sales decline to 2,100 units. The sales of popupswill not be affected. Class A motor homes sell for an average of $162,000 each. Class C homes arepriced at $59,500 and the pop?ups sell for $5,500 each. The new mid?range camper will sell for $32,900.What is the erosion cost?A. $36,250,000B. $49,190,000C. $49,350,000D. $160,000E. $118,00059. Ernie's Electrical is evaluating a project that will increase sales by $39,000 and costs by $6,000. Theproject will initially cost $102,000 for fixed assets that will be depreciated straight?line to a zero bookvalue over the 10?year life of the project. The applicable tax rate is 35 percent. What is the operatingcash flow for this project?A. $13,300B. $21,450C. $25,020D. $11,550E. $18,18060. Kurt's Kabinets is looking at a project that will require $80,000 in fixed assets and another $20,000in net working capital. The project is expected to produce sales of $138,000 with associated costs of$74,000. The project has a 4?year life. The company uses straight?line depreciation to a zero book valueover the life of the project. The tax rate is 34 percent. What is the operating cash flow for this project?A. $42,240B. $62,240C. $35,440D. $49,040E. $69,04061. Ripley Co. is considering a project that will produce sales of $21,000 and increase cash expenses by$8,600. If the project is implemented, the firm's taxes will increase from $23,000 to $27,000 anddepreciation will increase from $4,000 to $5,500. What is the amount of the operating cash flow usingthe top?down approach?A. $6,900B. $8,400C. $12,400D. $10,900E. $9,90062. A project will increase sales by $60,000 and cash expenses by $41,000. The project will cost $40,000and be depreciated using straight?line depreciation to a zero book value over the 4?year life of theproject. The company has a marginal tax rate of 35 percent. What is the operating cash flow of theproject using the tax shield approach?A. $12,350B. $8,650C. $15,850D. $13,150E. $10,35063. A project will increase annual sales by $144,000 and cash expenses by $95,000 for four years. Theproject has an initial cost of $102,000 for equipment that will be depreciated using MACRS depreciation.The applicable MACRS table values are .1429, .2449, .1749, and .1249 for Years 1 to 4, respectively. Thecompany has a marginal tax rate of 34 percent. What is the depreciation tax shield for Year 3?A. $3,925.59B. $6,065.53C. $11,774.27D. $8,288.16E. $4,955.7764. You purchased an asset three years ago at a cost of $135,000 and sold it today for $82,500. Theequipment is 5?year property for MACRS. The MACRS table values are .2000, .3200, .1920, .1152, .1152,and .0576 for Years 1 to 6, respectively. Which one of the following statements is correct if tax rate is 34percent?A. The current book value is $64,800.B. The taxable amount on the sale is $38,880.C. The tax due on the sale is $14,830.80.D. The book value today is $8,478.E. The aftertax salvage value is $24,049.20.65. Kustom Cars purchased a fixed asset two years ago for $39,000 and sold it today for $19,000. Theassets are classified as 5?year property for MACRS. The MACRS table values are .2000, .3200, .1920,.1152, .1152, and .0576 for Years 1 to 6, respectively. What is the net cash flow from the salvage value ifthe tax rate is 35 percent?A. $18,020B. $19,098C. $18,720D. $18,902E. $19,00066. A project is expected to create operating cash flows of $24,500 a year for three years. The initialcost of the fixed assets is $55,000. These assets will be worthless at the end of the project. An additional$4,000 of net working capital will be required throughout the life of the project. What is the project'snet present value if the required rate of return is 10 percent?A. $4,933.13B. $1,954.17C. $1,927.87D. $4,208.11E. $5,927.8767. A project will produce operating cash flows of $42,000 a year for four years. During the life of theproject, inventory will be lowered by $12,000, accounts receivable will increase by $15,000, andaccounts payable will increase by $10,000. The project requires $120,000 of new equipment that will bedepreciated straight?line to a zero book value over four years. At the end of the project, net workingcapital will return to its normal level and the equipment will be sold for $25,000, after taxes. What is thenet present value given a required return of 14 percent?A. $13,483.48B. $18,117.05C. $20,033.36D. $12,037.86E. $14,322.4968. Thornley Co. is considering a 3?year project with an initial cost of $587,000. The project will notdirectly produce any sales but will reduce operating costs by $265,000 a year. The equipment isclassified as MACRS 7?year property. The MACRS table values are .1429, .2449, .1749, .1249, .0893,.0892, .0893, and .0446 for Years 1 to 8, respectively. At the end of the project, the equipment will besold for an estimated $295,000. The tax rate is 34 percent and the required return is 9 percent. An extra$23,000 of inventory will be required for the life of the project. What is the total cash flow for Year 3?A. $491,782.87B. $496,208.19C. $514,782.87D. $519,208.19E. $523,008.2469. Assume the initial cost of one customized tool and die machine is $684,000 and costs $12,600 a yearto operate. Each machine has a life of three years before it is replaced. Ignore taxes. What is theequivalent annual cost of this machine if the required return is 14 percent?A. $237,750.85B. $268,411.15C. $307,220.33D. $240,600.00E. $289,038.1170. DeCento's is analyzing two machines to determine which one it should purchase. Whichevermachine is purchased will be replaced at the end of its useful life. The company requires a 12 percentrate of return and uses straight?line depreciation to a zero book value over the life of the machine.Machine A has a cost of $276,000, annual operating costs of $18,000, and a 3?year life. Machine B costs$220,000, has annual operating costs of $22,000, and a 2?year life. The firm currently pays no taxes.Which machine should be purchased and why?A. Machine A; because it will save the company about $18,600 a yearB. Machine A; because it will save the company about $19,261 a yearC. Machine B; because it will save the company about $21,202 a yearD. Machine B; because it will save the company about $19,315 a yearE. Machine B; because it will save the company about $18,667 a year71. JADO Mfg. is trying to decide which one of two machines to purchase. Machine A costs $421,000,has a 5?year life, and requires $108,000 in pretax annual operating costs. Machine B costs $589,000, hasa 4?year life, and requires $92,000 in pretax annual operating costs. Either machine will be depreciatedusing the straight?line method to zero over its life. Neither machine will have any salvage value.Whichever machine is selected, it will never be replaced. The discount rate is 13 percent and the tax rateis 35 percent. Which machine should be purchased and why?A. Machine A; because its NPV is about $49,320 higher than Machine B's NPVB. Machine A; because its NPV is about $38,319 higher than Machine B's NPVC. Machine A; because its EAC is about $89.989 lower than Machine B's EACD. Machine B; because its EAC is about $68,360 lower than Machine A's EACE. Machine B; because its NPV is about $45,880 higher than Machine A's NPV72. Margarite's Enterprises is considering a new project that will require $345,000 for new fixed assets,$160,000 for inventory, and $35,000 for accounts receivable. Short?term debt is expected to increase by$110,000. The project has a 5?year life. The fixed assets will be depreciated straight?line to zero over thelife of the project. At the end of the project, the fixed assets can be sold for 25 percent of their originalcost. The net working capital returns to its original level at the end of the project. The project isexpected to generate annual sales of $550,000 and costs of $430,000. The tax rate is 35 percent and therequired rate of return is 15 percent. What is the initial cost of this project?A. $330,000B. $430,000C. $580,000D. $360,000E. $650,000

 


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